Decline in US Dollar's Appeal, Global Central Banks Turn to Gold, Euro, and Renminbi

According to a recent survey, an increasing number of central banks are considering reducing their holdings of US dollars in foreign exchange reserves and instead increasing their holdings of gold, euros, and Chinese yuan. The fragmentation of the world trade system and geopolitical turmoil have prompted central banks to make this shift.

A report by the Official Monetary and Financial Institutions Forum (OMFIF) shows that, after excluding planned reductions, one-third of the surveyed central banks plan to increase their gold holdings in the next one to two years, the highest level in at least five years.

OMFIF surveyed 75 central banks from March to May this year, and the survey reflects the impact of the so-called "reciprocal tariff" introduced by US President Trump in early April. The survey was released on Tuesday local time.

Trump's tariff policies have triggered market turmoil and led to a significant pullback in the US dollar and US Treasuries, traditional safe-haven assets.

Gold, which has already been supported by record-breaking purchases by central banks, is expected to continue benefiting in the long term. The survey shows that 40% of central banks plan to further increase their gold reserves over the next decade.

"After years of record-breaking central bank gold purchases, reserve managers are doubling down on gold," OMFIF said in its report.

OMFIF pointed out that the US dollar was the most popular currency in last year's survey but has fallen to seventh place this year. Seventy percent of the surveyed central banks said that the US political environment makes them hesitate to invest in the US dollar, more than double the proportion from last year.

In terms of currency allocation, the euro and the yuan will be the primary beneficiaries as central banks de-dollarize.

According to OMFIF's survey, 16% of central banks plan to increase their euro holdings in the next 12 to 24 months, making it the current most popular currency. This proportion is higher than the 7% from a year ago, followed closely by the yuan.

However, from a ten-year allocation perspective, the yuan is more attractive. Thirty percent of central banks expect to increase their yuan holdings over the next decade, and its share in global reserves is expected to triple to 6%.

According to three sources directly involved with foreign exchange reserve managers, they believe that the euro is expected to regain the reserve share it lost after the 2011 European debt crisis by around 2030. Foreign exchange reserve managers have become significantly more positive about the euro following the introduction of the US "reciprocal tariff."

If this goal is achieved, the euro's share in reserves will rebound from the current approximately 20% to around 25%.

OMFIF's survey shows that the market generally expects the US dollar's share in global foreign exchange reserves to fall to 52% by 2035. Although it will still maintain its position as the top reserve currency, this will be lower than the current 58%.